The Four Labour Codes Are Live
India's four labour codes — the Code on Wages (2019), Industrial Relations Code (2020), Social Security Code (2020), and Occupational Safety, Health and Working Conditions Code (2020) — are now fully operational across all states.
The most impactful change for payroll teams is the 50% wage definition rule. Under the new definition, "wages" for the purpose of PF, ESI, gratuity, and bonus must constitute at least 50% of total remuneration. This means if your allowances exceed 50% of CTC, the excess gets reclassified as wages — increasing statutory contributions.
What This Means for Salary Structures
Every salary structure in your organisation needs to be reviewed. Here's the rule in simple terms:
- Basic + DA must be ≥ 50% of gross salary
- If Basic + DA falls below 50%, the difference is deemed as wages for statutory calculation purposes
- This affects PF contributions, ESI eligibility, gratuity calculations, and bonus entitlements
For example, if an employee's CTC is ₹6,00,000 and Basic + DA is only ₹2,40,000 (40%), the government deems wages as ₹3,00,000 (50%) for PF/ESI purposes — increasing employer PF contribution by ₹7,200 per year.
How PeopleOS Handles This
PeopleOS enforces the 50% wage definition rule automatically on every salary structure save. When you create or edit a salary structure:
- The system validates that Basic + DA ≥ 50% of gross
- Non-compliant structures are flagged with specific remediation guidance
- The payroll engine uses the higher of actual wages or deemed wages (50%) for all statutory calculations
This means zero manual compliance checks, zero risk of under-contribution, and audit-ready documentation for every payroll run.
Action Items for HR Teams
- Audit all existing salary structures for 50% compliance
- Recalculate employer PF/ESI costs under the new definition
- Update offer letter templates with compliant salary breakdowns
- Communicate changes to employees — especially those whose take-home may decrease